Trade talks go on

Ron Smith Farm Press Editorial Staff | May 04, 2006

For farmers, international trade agreements resemble carnival games, you know going in you're going to get fleeced.

At least that's the way it's played out so far and, based on the tone of ongoing negotiations, U.S. ag commodity competitors and countries that would like to continue to insist that the United States do away with farm subsidies and open markets to their products but express an entrenched unwillingness to lower their own tariffs or do away with their own sometimes subtle subsidies.

“Negotiations continue all the time,” says William Gillon, general counsel, National Cotton Council of America. But just because talks are ongoing doesn't mean negotiators are making progress toward a workable agreement.

“We've seen no progress in the last three months,” Gillon said during the recent Plains Cotton Growers Inc. annual meeting in Lubbock, Texas. “They (trade negotiators) have had a number of meetings but no concrete results,” he said.

Some urgency accompanies trade talks. “The U.S. trade negotiation authority expires in June 2007,” Gillon said. “But the real deadline is December 2006. Modalities, a rough overall agreement, must be completed by the end of April and countries need to submit their proposed tariff schedules, consistent with those Modalities, by July in order for all the technical work to get completed by the end of the year.”

Current talks, part of the apparently never-ending Doha Round of World Trade Organization negotiations, have significant implications for cotton. A group of African nations want cotton treated separately from other commodities and they want significant concessions from the United States.

“An agreement is questionable,” Gillon said. “And even if negotiators bring back an agreement, congressional approval could be problematic.”

For Congress to approve any agreement that gives significant market access to competitors, they will need to get something “substantive in return,” he said. Small concessions from trade partners will not be adequate. “Modest gains in manufacturing and services for the United States will generate only mild congressional support. The 2007 farm bill debate also plays a role.”

Gillon said market access remains the “outstanding issue in the Doha Round of negotiations. That's the biggest U.S. issue.” He said the United States, with average tariff rates of 12 percent, asks that competitors lower tariffs significantly. He said the C-20 countries, a group of developing nations, propose a 59 percent tariff rate cut. The European Union proposes 39 percent. Neither of those recommendations is acceptable to U.S. negotiators who see a 65 percent to 75 percent rate cut as reasonable and necessary for “meaningful gains. Otherwise, they see no benefit to U.S. agriculture. The EU is a long way from that.”

He said some nations (both the EU and some developing countries) also seek “significant exemptions for special or unique commodities. That works against effective tariff cuts that would insure market access,” Gillon said. “But tariff cuts to improve market access will be a hard fight.”

Other issues include food aid, which some nations demand be cash only instead of commodities. And cotton has been singled out for “special and differential treatment by some African countries.”

Gillon said developing countries want greater cuts in U.S. domestic subsidies than proposed by the United States. They want to increase the proposed 60 percent reduction in Amber Box payments, impose greater limits on a $5.4 billion ceiling on Blue Box (CCP, for example) and insert new restrictions on Green Box or exempt programs. They also disagree with the United States on the base years to use for calculating some of the new disciplines.

“Proposed cuts to U.S. farm programs could be substantial but those cuts can't be justified unless there is significant improvements in market access,” he said.

“Reductions proposed by the United States would result in a $7.6 billion ceiling compared to the current $19 billion, causing current U.S. farm programs to face significant domestic support cuts.”

He said those proposals could mean a loss of $2 billion to $4 billion a year to ag programs, without counting the special cotton issue.

“It may be possible to shift part of those cuts to Green Box type, decoupled programs but that comes with drawbacks, especially for cotton and rice,” Gillon said. “That action would shift support from programs that have the least impact from payment limitations to programs that tend to be affected more by payment limits.”

Gillon said any agreement should “provide compliance assurance for the United States and other countries.” If the United States complies with the international agreement concerning agricultural support, it should “not be subject to other vague compliance standards (similar to the Brazil complaint against the U.S. cotton program).”

Gillon said the “special treatment” demands being lodged against U.S. cotton call for cotton support to be reduced more than the general formula. They (the African nations) also seek money to fund their own cotton programs.”

Gillon said organizations such as Oxfam, which has blasted U.S. cotton programs as price distorting and unfair to developing African nations trying to build cotton trade, are “missing the overall economic realities facing cotton worldwide,” he said. “Increased mill use in China, India, Pakistan and others have taken spinning business from the least developed countries. That increase was spurred largely through industrial policies, high border measures, tax incentives and refunds and the free financing of construction that the WTO cannot and will not adequately address. More has been spent on adding polyester and cotton manufacturing capacity in these developing countries than has been spent under the U.S. cotton program.”

“Eliminating the U.S. cotton program would mean very little to world cotton prices,” he said. “And we still see an inexplicable reluctance from China, Pakistan and India to open their markets to developing countries.”

He said the price received by the four African nations is well below that of other developing countries. “Also, virtually every cotton producing country in the world has increased yields, but Africa's yields are declining. Brazil has had a major increase in yields, up to 600 pounds per acre. The United States is up about 300 pounds per acre. China is up 200 pounds and the world average is up more than 150 pounds.

“The C-4 countries need help,” Gillon said, “but eliminating the U.S. cotton program is not the answer. Their focus should be on developmental answers. A new World Bank study concluded that the welfare of the C-4 countries would be enhanced more from the adoption of biotech cotton than by the removal of all cotton subsidies and tariffs.”

He said the U.S. cotton industry must be concerned about WTO talks because of dependence on international trade. “Our cotton market has shifted to export,” he said. “Some trade agreements have helped maintain some semblance of a textile industry in this hemisphere but China, India and Pakistan still account for the biggest textile growth.”

He said two-thirds of the U.S. cotton crop goes in the export market. “We export more cotton than we produced in the mid 1990s. We will export 16.8 million bales from the 2005 crop.

Gillon said U.S. cotton farmers and the National Cotton Council “must find ways to avoid trade challenges. But if challenges do occur, we must find ways to deal with them.”

He says a big question is whether trade negotiators will support cotton in ongoing talks or “abandon it to make a deal. So far, negotiators have not had much to bring back to Congress. They understand the need to cut tariffs and increase market access.”

He also wonders what will happen if negotiators “get a huge agreement on market access. Cotton could become a throw-away in favor of manufacturing and other interests.”